R. S. A. C. Kasi Iyer v. The Commissioner of Income Tax, Mysore, Travancore-Cochin and Coorg, Bangalore

Shah J. mission to come to the conclusion to which it ca.me in

its report?

.(2) On the facts and in the circumstances of the case was. the order C. :No. 76 (1) I.T/51 dated 25-10-1951 of the Government of India. passed under the provisions of s. 8(2) of the Tra.va.ncore Taxation on Income (Investigation Commission) Act read with s. 3 of the Opium and Revenue Laws (Extension of Application) Act of 1950, a. legal and valid order? (3) Whether on the facts and in the circumstances of the case, the order passed by the Income Tax Offi-cer in pursuance of the directions of the Government under.a. 8(2) of the Tra.vancore Taxation on Income (Investigation Commission) Act, 1124, was a legal and valid order ?

The High Court answered the three questions in the affirmative. Against the order of the High Court answering the reference, this appeal has been preferr-ed with special leave.

The facts which gave rise to the reference a.re briefly , these. The appellants are a firm of merchants carrying

on business in yarn in the Districts of Triva.ndrum and Na.gercoil in the Tra.va.ncore-Cochin State. For the accounting year 11181\1. E. (August 17, 1942 to August 16, 1943), the a.ppella.nts submitted a. return under the Income Tax Act showing a. net return of Rs. 4, 78,594-5-0 as assessable income, and they were assessed to in-come.tax and super tax by the Income Tax Officer on that return. In 1124 M. E., the Legislature of Tra.va.n-core enacted the Investigation Act conferring authority upon the Government Qf Tra.vancore to cons~itut~ a. commission to be ca.lied an Income Tax In vestige. hon Commission to investigate and report on all matters relating to taxation on income, with particular refer-I960 ence to the extent to which the existing law relating S. to, and procedure for, the assessment and col 1 ection R. A. C. I<asi Iyer of such taxation . was inadequate to prevent evasion v" thereof and to investigate in accordance with the pro-The Commissioner visions of the Act in oases referred on or before Feb-0! Income-tax, ruary 16, 1950, to 1t , un d er s. 5. Th' e G overnment was Mysore, Travan-core-Cochin & authorised after consideration of the report to direct coorg, Bangalore that proceedings be taken under the various Acts - including the Income Tax Act, in respect of any period Shah J. commencing after August·l6, 1939. By sub-s. (4) of s. 8, all assessment or reassessment proceedings taken in pursuance of the direction under sub-s. (2), the find-ings recorded by the Commis8ion on the case or on the points refe.rred to it were, subject to the provisions of sub-ss. (5) and (6) to be final. Sub-section (5) of s. 8 provided for a reference to the High Court on any question of law arising out of any order made by the Commission.

The State of Travancore-Cochin merged with the Indian Union on March 7, 1949, but the Income Tax Act anc;l the Investigation Act continued to apply to that area notwithstanding the merger. On August 6, 1949, the Government of Travancore.Cochin passed an order referring the case of the appellants to the Commission for investigation and report urider s. 5 of the Investigation Act. On the evidence led before it, the Commission held by its report dated February 1, 1950, that the appellants had in the accounting year 1118 M. E. made a secret profit of Rs. 1,31,750 which was not included in the earlier assessment. The Com-mission th•m proceeded to compute the tax payable by the appellants and found that the amount of tax pay· able by the appellants on their true income was Rs. 1,35,736-8-0 and that they were liable to pay that amount subject to credit for the tax already paid.

The Government of Travancore-Cochin by ord\ir dated February 14, 1950, accepted the report of th.e Commis-sion and directed that .immediate sj;aps be taken to recover, under the Income Tax Act, from the appel-lants the tax due according to the findings recorded by the Commission. Pursuant to this direction, the

470 SCPRE~IE COCRT HEPORTS [I96l]

r96o Income Tax Officer, without holding any fresh assess-

ment proceedings, issued on March 15, 1950, a demand R. s. A. c. notice . un d er s. 4 2 o f t h e I ncome 'I 'ax Act for t h c Kasi Iya

v. additional tax imposed on the appellants according The Comm'"'°"" to the findings of the Commission and called upon the

of Inco•'."''"'· appellants to pay Rs. 13,337-13-0 as additional tax. JJysorcr, ;'""'.,"' The Union Legislature enacted on April 17, 1950, the core-0 ~ 0 · d R 1· (E t · f A 1 · . ) Coorg, Ba>1galu" ' "" pmm an evenue ,aws x ens10n o pp 1ca.t1un

__ Act providing for the extenRion of certain opium and Shat. ;. revenue laws to certain part8 of India. By s. 2 of that

Act, amongst others, the Taxation on Income (Investi-gation Commission) Act, XX X of 1947 (enacted by the Central Legislature) and all rules and orders made thereunder which were in force immediately before the commencement of Act XXX of 1950, were extend-ed to the rest of India except the State of Jammu and Kashmir, but bys. 3, in so far as it is material, it was provided that, " If immediately before the commencement of this Act there is in force in any part B State other than Jammu and Kashmir any law (xx xx) corresponding to the Taxation on Income (Investigation Commis-sion) Act., 1947 (XXX of 1947), that law shall conti-nue to remain in force with the following modifica-tions, (a) all cases reforrerl to or pending before the State Commission (by whatev1•r name called) in res-pect of matter~ relating to taxation on income other than agricultural income, shall stand transferred to the Central Commission for disposal:

Provided ..................................................... . (b) .............................................................. . (bb) ........................................................... .. (c) Any rcferenc" i11 the State law, by whatever form of words, to the State Governm1mt or tho State Commission shall, in relation to income other than a<>ricultiiral income, be construed as a reference to the C~ntral Government or the Central Commission, as the ca.so may ho;".

Purporting to exercise authority under s. 8(2) of the Investigation Act read with s. 3, cl. (c), of the Opium and Revenue Laws (Extension of Application) Act, 1950, the Government of India, on October 25, 1951, '9 60 directed that appropriate assessment proceedings under the Income Tax Act be taken against the appel- ~i;;; Aiy:; !ants with a view to assess or reasses the concealed v. income of Rs. i,31,750 which had escaped assessment. The Commissioner On January 1 1952 the Commissioner of Income Tax 0! Income-tax, withdrew the 'not. ic; of demand dated March 15, 1950, 1 ' 00 ~'.'- , Mysore'' 1 an d t h ereafter the Income Tax Ofhcer commenced core-oc 1·tn <.'..>"' Coorg, Bangalore reassessment proceedings against the appellants and __ by his order dated March 29, 1952, directed the appel-Shah J. !ants to pay income-tax and super tax on the conceal-ed income.

At the instance of the appellants, a reference was made to the High Court of Tra van core-Cochin under s. 8(5) of the Investigation Act and the three questions set out hereinbefore were referred to that court. In the view of the High Court, there was evidence on which the Commission could arrive at the conclusion recorded by it. Evidently, the High Court was incom-petent, in answering the question, to enter upon a review of the evidence in exercise of its advisory jurisdiction ; and Mr. Viswanatha Sastri on behalf of the appellants has fairly not attempted to _challenge the answer recorded by the High Court on the first question.

The Government of India had, on a consideration of the report of the Commission, directed on October 25, 1951, that assessment proceedings be started against the appellants. Section 8(2) of the Investigation Act, in so far as it is material, reads as follows :

" After considering the report, our Govemment shall by order in writing direct that such proceedings as they think fit under the Travancore Income Tax Act, VIII of 1096 ...... shall be taken against the person to whose case the report relates in respect of the income of any period commencing after the last day of Karkadagom, 1124 (August 16, 1939) and upon such a direction being given, such proceedings may be taken and completed under the appropriate law not-withstanding the restrictions contained in s. 25 of the Travancore Income Tax Act, VIII of 1960 ...... and notwithstanding any lapse of time or any decision to

472 SUPREi\IE COURT REPORTS [1961]

r96o a different effect given in the case by any Income Tax

authority or Income Tax Appellate Tribunal".

R. S. A. C.

Kasi Iy" By s. 3 of the Opium and Revenue Laws (Ext~nsion of

v. Application) Act, XXXIII of 1950, the Investigation The {:<>•1>•11ssio"" Act continued to remain in force with the modification

01 Income·tax, that reference in the State law to the State Govern-Mys°'c'· 1 h·rnv~•- ment was in relation to income other than agricultural core-oc ui ,,,.. .

Cooeg, Ban•aloee income, to be construed as a reference to the Central

0 Government. Whatever authority could be exercised Shah J. bv the Travancore-Cochin Goverument before the

e;1aetment of the Opium and Hevenue Laws (Exten-sion of Application) Act, 1950, could therefore, since the application of that Act, be exercised by the Central Government, and the latter Government could direct in respect of a case that proceedings for reassess-ment be commenced against a tax payer. The case of the appellants was referred to the Investigation Com-mission by the Travancore-Cochin Government and report was made to that Government by the Commis-sion, and the authority of the Government of Travan-core.Cochin to take action on the report having been conferred upon the Central Government by s. 3(c) of the Opium and Hcvenue Laws (Extension of Applica-tion) Act, the Central Government was prima facie competent to direct that proceedings under the Income Tax Act as may be justifiable be tak.-11 against the appellants. But .M.r. Viswanatha Sastri appearing on behalf of the appellants contests that view on two grounds:

(1) that the Central Government ma.y direct pro-ceedings to be taken under the Income Tax Act only if the report wa.s ma.do by a commission appointed under the Taxation on Incomo (Investigation Com-mission) Act, XXX of 1947, and not on a rerort ma.de by a commission appointed by tho Travancore-Cochin State under the Investigation Act, and

(/!) that the Travancore-Cochin Government having once ta.ken action directing recovery of the tax due, it was not competent to the Central Government under s. 8(2) of the Investigation Act again to take any action on the report.

In our view, there is no force in either of these con-r960 tentions. The expression "the report " in s. 8(2) refers to the report made under s. 8(1) by the members of ~;.:;AI;.~; the Commission appointed by the Travancore·Cochin v. Government under the Investigation Act and on a Tile Commissioner consideration of that report, the Government of' India 0! Income-tax, has· since the enactment of the Opium and Revenue Mysore, Travan-L aWS. ' (E xtens10n · f A pp l" 1cat1on · ) A t 1950 power t core-Cochin 6-0 C , , ·O Coorg Bangalore direct that proceedings for assessment or re.assessment · __ he taken under the Income Tax Act. On the plain Shah J. language used by the Legislature in s. 3( c) of the Opium and Revenue Laws (Extension of Application) Act, 1950, the contention raised on behalf of the appel-lants is unsustainable.

By order dated February 14, 1950, the Government.

of Travancore-Cochin had accepted the report of the Commission and had directed the Boa.rd of Revenue to take necessary action for reeovery of the amount of tax due from the appellants, and pursuant to that direction, without holding proceedings for assessment or reassessment, a demand notice was issued by the Income Tax Officer. The order passed by the Govern-ment of India on October 25, 1951, is not in any way inconsistent with the order dated :February 14, 1950.

Both the orders direct that steps be taken for recovery of the amount of income tax due from.the appellants.

But, if as appears evident from s. 8(4) of the Investi-gation Act, liability to pay income-tax could arise only on an effective order of assessment, the Income Tax Officer not having assessed the income before the demand notice was issued, the Government of India was, in our judgment, competent to direct that pro-ceedings be ta.ken for assessing the liability of the appellants to pay tax consistently with the provisions of the Income Tax Act. The order passed by the Government of India on October 25, 1951, may there-fore be regarded as effectuating the earlier order passed by the Travancore-Cochin Government on February 14, 1!)50. In any event, there is nothing in s. 8(2) which justifies the contention that action may be taken thereunder only .once. If an unauthorised

4i4 8UPRE:\fE COURT REPORTS [ 1961] i96o direction is given under s. 8(2), there is not.bing in that

provision which prevents rectification of that ordn. ~(;~, ~>~~ By sub-s. (4) of s. 8 of the ln\'cstiga.tion Act, the

"· findi11gH recorded by the Commission in cases or points Thr Cnmmi"''"" referred t-0 theri1 are macle final in all aRsessment or

0/ /llcowHo·., reassessment proceedings. The Act has, by sub-s. (2) of "1-'"".'· Jrnvau-s. 8 remored.the bar of limitation which arose by CO>t·Corh•• & 2 5 o f t I le I ncorue T A ct. 1 twas con1petcnt t-I icre- • c00 , 1., nangalvi(' ~. ~~

fore to the Income I ax Officer to reopen the assess. 0 ... _ """" 1. ment proceedings not w ithslll.nding any lapse of time

and the prev ions order of assessment did not opPrate as a bar to such reassessment. The High Court was therefore in our judgment right in recording its answers on the three questions submitted by the Com-missioner of Income Tax. In that view, the appPal fails and is dismissed with costs.

Appeal dismissed.

THE BHOPAL SUGAI{ INDUSTRIE8 LTD.

v.

THE J'.'iCOME-TAX. OFFICEH, BHOPAL

(8. K. DAS, j\f. HIDAYATULLAH, K. c. DAS GUPTA,

J. c. SHAil ANO N. RAJAOOPALA AYYANOAR, J.J.)

[)irrcfion.< by superior Tribtmals-If could be refused lo be carried 011t-J>ri11ci'plrs (if adn1inistrafion of justice.

The Income-tax Appellate Tribunal in the exercise of its appellate jurisdiction gave certain directions to the respo1•dent. an Income-tax Officer, in connection \\'ith the ascertainment of the market value of sugarcane grown by the appellant at their farm and use<l by them for the manufacture of sugar. Th~ appel-lant asked the Income-tax Officer to give effect to the said order and directions of the Tribunal but was informed that no relief coul<l be given. Thus the Income-tax Officer failed to carry out the directions of the Tribunal.

Held, that the refusal to carry out the directions which a superior Tribunal had given in exercise of its appellate powers was in effect a denial of justice and was furthermore destructive